SHANGHAI, Dec 11 (Reuters) - The yuan rebounded sharply onTuesday, recovering most of the ground lost during a late-daytumble on Monday afternoon that was apparently orchestrated bythe central bank.

Despite the yuan's gains on Monday, traders say that reviveddollar demand is what has restored liquidity to the marketfollowing weeks of near paralysis.

On Monday afternoon, the People's Bank of China (PBOC)apparently stepped in to act as dollar-buyer of last resort andjumpstart trading, after the yuan had remained at the strongestlevel permitted by the official daily trading range almost allday, amid sickly trading volumes.

Volume remained healthy on Tuesday morning, with tradersreporting steady dollar demand, though they were unsure if thePBOC was still in the market.

Traders say that even without dollar buying by the centralbank -- or perhaps in addition to some moderate dollar-buying --dollar demand could recover at year-end, when firms need dollarsto meet accounts payable.

Spot yuan firmed to 6.2321 per dollar at midday,markedly firmer than Monday's close of 6.2451 but near the6.2293 level where yuan traded for most of Monday, before thecentral bank apparently stepped in.

The yuan briefly touched 6.2277 on Tuesday morning, thestrongest level permitted by the central bank, but in adeparture from the pattern established over the last month, itdid not remain glued to that limit.

The PBOC set its midpoint at 6.2906 on Tuesday,slightly firmer than Monday's fix of 6.2922. The spot rate isallowed to diverge by no more than 1 percent from the midpointthe central bank sets each morning.

Trading volume was robust on Tuesday, reaching $6.9 billionby midday compared to only $335 million on Monday.

Still, traders say it's still too early to conclude that thedeadlock between the central bank and the market is really over.

Traders caution that the spot rate could still return tolimit-up later today.

That deadlock has seen volume plummet as the yuan hitlimit-up for 31 of the last 34 sessions amid an absence ofdollar bids.

Traders are generally unable to definitively confirm thePBOC's presence in the market, but when major state banks startbuying or selling aggressively, as they did on Monday afternoon,it is typically interpreted as a sign that they are squaringpositions created via trades with the central bank.

But trades involving the PBOC are generally invisible to therest of the market.